The It Industries Contribution To Virtually Every Major Global Industry Finance Essay - Free Essay Example

Information technology plays an integral part of virtually every major global industry, which has emerged as a prime global source of growth and employment. IT industry has become one of the most vigorous industries in the world due to increased productivity worldwide, especially in the developed countries. Owing to its extensiveness and easy accessibility as well as wide range of IT products available, the demand for IT services has become persistent both from consumers and businesses, contributing to this sectors rapid growth. Both software development and the hardware involved in the IT industry include everything from computer systems, to the design, implementation, study and development of IT and management systems. Unlike other common industries, the IT sector is knowledge based. The IT industry assists other sectors in the growth process of the economy including the services and manufacturing sectors. This report will concentrate on two potential competitors in the personal computer industry, Hewlett-Packard and Dell Inc. Hewlett-Packard is a global technology company, ranking 20 in the Fortune 500 list. Company has set up business in over 170 countries either developing or under-developed. The company is also taking an active role in increasing the volumes of sales in new markets worldwide, engaging with other multinational corporations, non-governmental organizations to reinforce the competitiveness on the local market and on international arena through policies and strategies that can supp ort free-market economies. This is one of the reasons that makes HP a leading technology company in the growing IT markets (HP Annual Report, 2003). Dell Inc. tenders a variety of product categories including desktop PCs. Dell listens to customers and sells its products directly to customers through sales representatives, telephone based sales and via range of indirect sales channels. Dell can boast as number one supplier of PC systems in the US, and number two worldwide. Primary business strategy that Dell employs explicitly focuses on customer model, highly efficient manufacturing and logistics as well as relevant technologies and solutions. By expanding this strategy through adding new distribution channels, Dell intends to acquire more commercial customers all over the globe. (Dell Annual Report,2008) Industry Analysis Number of Companies within the Industry: Dell The worlds leading direct-sale computer retailer provides a wide range of computer and entertainment products for consumers and enterprise markets. HP HPs Personal Systems Group (PSG) markets desktop and notebook PCs to consumer, businesses, government agencies, and schools. Toshiba was the worlds fifth largest personal computer vendor in 2009 Apple Once the worlds top PC maker, Apple Computer has been relegated to niche status in a market dominated by Wintel machines (computers using Microsoft Windows software and Intel processors). Scale Economies: There are two distinct economies operating between the actual company and the markets along with most giant enterprises. The distinct economies are divided into internal and external. Internal: Tech Economy, Managerial Economy, Financial Economy, Marketing Economy, Research Development External: These features of scale economies involve distribution centres and retailers. For instance, Sony, HP or Apple fabricate computers, whereas retailers organize computer deliveries to the consumer. Dell is an exception, which has surpassed in the practice of delivering computers right to the door of their customers home. Learning Experience Effect: The maturity of computer industry has achieved and is likely to be further sustained, owing to the fact that in most developed countries computers can be found in virtually all homes with connection to the internet. Whats more, students all over the world are taught in schools how to operate computers and competency is set to increase. However, there are still those who find it hard to adapt to new applications and manage with basic operations such as installing drivers or simply connecting a monitor. Support is considered to be the most common complaint among customers in the industry. Dell is again an exception. It receives great rewards form highly efficient customer service relationship. Nevertheless, the complaints are few due to the reliability of personal computers. Capital Requirements: The owners equity required to embark and compete with already recognized names in the computer industry is outrageous. A single fact of HP spending 3.9 billion dollars on research and development last year alone suggests that a person thinks twice about engaging in the industry. Recent applications and innovations have been introduced by the huge companies; do not leave a chance to new-comers to compete. On top of that, powerful brand name products that are manufactured by Dell, HP and Apple have become truly accepted by many households. Nevertheless, being technologically savvy and having an ability to create sorts of unique features can help an individual to sell the ideas to the existing large companies. This might be the most appropriate situation for those who seek profits from the PC business. Industry Profitability: The fact remains that the PC industry doesnt produce only PCs. Every company that creates PCs also has its hand in other industries and markets. An important question to ask is how profitable is the industry. And the answer is billions upon billions upon billions of dollars. The industry is constantly redefining itself as well as every other business on the world due to its deep routes within every industry. As for what company ranks the highest in profit at the moment is Apple, but the numbers are skewed due to other hardware Apple provides. The industry is extremely competitive and profitable. Forces: Suppliers Intel and Microsoft are the two most dominate suppliers in the PC industry. Suppliers: Intels microprocessor chips are used in approximately 80% of personal computers. Microsoft operating systems are used in 90% of computers, giving it substantial bargaining power. Given that Microsoft and Intel control the majority of the PC supplier market of major component parts, the business world has named the two Wintel. Buyers: The strength of the PC buyer has basically evolved from the personal computer becoming a commodity-like item. Backward integration is also a factor in the strengthening of the PC buyers bargaining Power because more and more people are building their own computer systems. Rivalry Among Existing Firms: The competition in the personal computer industry is also an industry that resembles follow the leader. Follow the leader occurs when industry leaders are imitated by competitors; and those competitors that do not follow will fall off by the wayside. Price Wars: Ex. In 1999 the average PC cost $ 1,699. Now the average price of a PC is under a thousand dollars. Threat of New Entrants/Stakeholders The chances of a new PC vendor entering into the market and gaining significant market share is pretty slim, entry barriers are higher now than they ever have been. Two of those entry barriers that are making entry into the PC market so tough are cost and distribution. Concentrated: it is estimated by analysts that in the near future the top 5 vendors may control 70% of the global personal computer market. 5. Stakeholders: Environmentalists and E-waste are the major stakeholders for the PC industry; the dumping of high-tech trash like computers in landfills. Hewlett-Packard, IBM and Dell have recently started up a computer recycle program, recycling in all computer brands for a small fee Competitor Analysis of PC Manufacturers: Dell Inc: Risk factors: There are a host of risk factors that impact adversely on the business. The following are defined as some of the most important ones: Deterioration in global economic situation and financial markets insecurity could harm the business and lead to reduced net revenue and profitability. Deterioration in global economic situation and financial markets insecurity could harm financial services activities. The strong competition which is faced may have negative impact on the market share, profitability and revenue. Weakening in infrastructure failures and breaches in data security could deteriorate the business. Failure of effective product management and services transitions could result in reduced demand for the products and the profitability of operations. Net Revenue: Net revenue remained flat year-over-year at $61.1 billion. During Fiscal 2009, the global commercial revenue decreased by 2% year-over-year while unit shipment remained flat over the second half of Fiscal 2009. Operating income: Operating income declined by 7% to $3.2 billion in 2009. The decrease was particularly caused by a shift in product mix that ended in lower selling prices. Net Income: For the year 2009, net income went down 16% to reach $2.5 billion. This was affected by a 7% fall in operating income, a 65% in investment and other income, and a rise in effective tax rate from 23.0% to 25.4% Gross Margin: January 30, 2009 February 1, 2008 Dollars Revenue Change Dollars Revenue Change (in millions, except percentages) Net revenue $61.101 100% (0%) $61.133 100% 6% Gross margin $10.957 17.9% (6%) $11.671 19.1% 23% Source: Dell Annual Report (2009) Hewlett-Packard: Net Revenue: The components of the weighted net revenue change between 2008 and 2009 were as follows: Net revenue of $114.6 billion in 2009 2009 2008 Percentage Points Personal Systems Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5.9) 5.6 Imaging and Printing Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4.7) 1.0 Enterprise Storage and Servers . . . . . . . . . . . . . . . . . . . . . . . . . . . (3.4) 0.7 HP Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.6) 0.6 Corporate Investments/Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.2) (0.2) HP Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.4 Services . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . 11.6 5.4 Total HP . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . (3.2) 13.5 Source: HP Annual Report (2009) GAAP operating profit of $10.1 billion GAAP diluted earnings per share of $3.14 Gross Margin: Total gross margin of the company declined by 0.6 percentage points in 2009 compared to 2008. On a weighted basis, ESS had the biggest impact to the total gross margin decline. Apple: Net Sales: increased $4.1 billion or 12% in 2009 compared to 2008. The following factors contributed positively to this increase: 1. This growth is attributed mainly to augmented distribution and strong demand for iPhones. iPhone revenue together with net sales of related products and services made up $6.8 billion in 2009 (a rise of $4.9 billion or 266% compared with the previous year) 2. Net sales of other music-related products and services went up $696 million or 21% over 2009 compared to 2008. 3. Net sales of Mac plunged 3% during 2009 as opposed to 2008, though Mac unit sales rose by 7% over the same period. Net sales per Mac unit sold went down by 10% during 2009, mainly owing to lower average selling prices across all Mac portable and desktop systems and a stronger U.S. dollar. Net sales of Macs comprised 38% of the Companys total net sales for 2009. 4. iPod net sales declined $1.1 billion or 12% in 2009. iPod unit sales went down slightly by 1%, while net sales per iPod unit sold decreased 11% to $149. Gross margin: The gross margin percentage rose by 1.7% between 2008 and 2009 (34.3% against 36.0% respectively). The primary drivers of the increase in 2009 were considerably lower commodity and other product costs. 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¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦.. 11.4% 11.6% Earning per common share: Numerator: Net income ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ $5.704 $4.834 Denominator: Weighted-average shares outstanding ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ'à ‚ ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ .893,016 881.592 Effect of dilutive securities ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ 13.989 20.547 Weighted-average shares diluted ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ'à ‚ ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦..907.005 902.139 Basic earnings per common share ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦$6.39 $5.48 Dilute d earnings per common share ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦.. $6.29 $5.36 Source: Apple Annual Report (2009) Chapter Two: Financial Analysis Ratio Analysis Ratio analysis PROFITABILITY: Return on Ordinary Shareholders Funds ROSF = Net profit after taxation and preference dividend (if any) x 100 Average ordinary share capital + reserves Return on Total Assets ROA = Net profit before interest and taxation x 100 Average total assets Return on Capital Employed ROCE = Net profit before interest and taxation x 100 Average Share capital + Long-term loans Net Profit Margin NPM = Net profit before interest and taxation x 100 Sales Gross Profit Margin GPM = Gross profit x 100 Sales EFFECIENCY: Average Inventory Turnover Period Inventory turnover period = Average inventory held x 365 Cost of sales Average Settlement Period for Accounts receivable (debtors) Average settlement period = Average trade debtors x 365 Credit sales Average Settlement Period for Accounts Payable (creditors) Average settlement period = Average trade creditors x 365 Credit purchases Asset Turnover Period Average asset turnover period = Average total assets employed x 365 Sales LIQUIDITY: Current Ratio Current ratio = Current assets Current liabilities Acid Test or Quick Ratio Acid test or Quick ratio = Current assets (excluding inventory and prepayments) Current liabilities Cash Flows from Operations Ratio Cash flows from operations ratio = Operating cash flows Current liabilities FINANCIAL GEARING (LEVERAGE): Gearing Ratio Gearing ratio = Long-term liabilities x 100 Share capital + Reserves + Long-term liabilities Interest Cover Ratio (times interest earned) Interest cover ratio = Profit before interest and taxation Interest expense DELL Inc.: Financial Year 2009 Profitability Ratio FY 2009 Return on Shareholders Fund 61.9% Return on Total Assets 11.8% Return on Capital Employed 62.1% Net Profit Margin 5.2% Gross Profit Margin 17.9% Efficiency Ratio Average Inventory Turnover Period 7 days (to nearest day) Average Settlement Period for Accounts Receivable 32 days (to nearest day) Average Settlement Period for Accounts Payable 465 days (to nearest day) Asset Turnover Period 161 days (to nearest day) Liquidity Ratio Current Ratio 1.3 times Quick Ratio 1.2 times Cash Flow from Operations Ratio 0.1 times Financial Gearing Gearing Ratio 63.3% Interest Cover Ratio   23.8 times HEWLETT PACKARD Co.: Financial Year 2009 Prodigality Ratio FY 2009 Return on Shareholders Fund 19.2% Return on Total Assets 8.8% Return on Capital Employed 20% Net Profit Margin 8.8% Gross Profit Margin 23.8% Efficiency Ratio Average Inventory Turnover Period 59 days (to nearest day) Average Settlement Period for Accounts Receivable 53 days (to nearest day) Average Settlement Period for Accounts Payable 52 days (to nearest day) Asset Turnover Period 363 days (to nearest day) Liquidity Ratio Current Ratio 1.2 times Quick Ratio 1 times Cash Flow from Operations Ratio 0.3 times Financial Gearing Gearing Ratio 43.5% Interest Cover Ratio 14 times References: